I've come to learn that many GMs have a problem with NPCs. Weather it's not making them lifelike or making not enough. I've decided to throw some things out there to help you all. Or rather try. If you are going to have your heroes try and save the world, or even a town, they have to see the point. They have to know a few NPCs and like them. So your people have to be lifelike and likable, which means that they all have to be different.

If your at the table, playing a TT do a little RP. If a bartender, have him cleaning a glass. Position yourself like they would, if an arrogant person, hold yourself up proper and talk like you are better than everyone. If PBP make sure to note different quirks of them. Make a note of the scotch glass in a bartender's hand that he is drying with a towel. How old is the character? Does he have gray hair? Perhaps a receding hair line? A distinct way of talking?

The biggest help that I have found for NPCs is nothing related to RPGs at all. It came from a book I found about how to write. "On Writing" By Stephan King was the book, and even if you don't like his work look into this one book. It will help you in your campaigns so much it's insane. The biggest article that stood out to me in the book was "Imagery and The Third Eye" By Stephan King. It sounded to me like it was written by a GM instead of a writer.

Second thought: It's a town. It has people. Sound simple? It's probably often forgotten. I've seen many GMs act like the NPCs are ghosts, or not there. When a player asks to get somewhere in town, have him pass someone, if he is in a hurry let him bump into someone. Have you ever seen someone in a hurry, who was practically running down a crowed sidewalk and not hit anyone? Have a merchant stop the players, and try to sell them something. Have some children playing tag run around and get in some of the players way, or knock into them and fall over. Have a crazy homeless man, or someone who is a big fan (if the heroes are famous) of the players, have him follow them and ask for something, or if he can adventure with them. Have someone who is the town drunk, or crazy. Have him hallucinate thinking the players are just his imagination.

In D&D especially people seem to overlook that adventurers just aren't common. It's expensive to be an adventurer, it takes years of training in some cases and its horribly dangerous. People just don't do it. So heroes would be strange in some towns, perhaps they are overly respected, or people look at them with disdain. Just make note of the mass amount of people who the players may never see again. No matter if they don't matter, they exist. Just like all those people with whom you will never meet in real life, they still exist, still have an impact on the world, and still live normal lives. I hope this helps you in your future campaigns! Feel free to mention anything you have found in your experience with NPCs what works and what doesn't and lets see if we can't make better campaigns with better NPCs.

Until the adventure ends!
Signed,
Zuka Zamamee, the often forgotten NPC

On the flip side of that coin, players know that towns have people. There are only so many times you can describe people walking down the street before it gets redundant. There's only so many times you can tell the players that the bartender is cleaning a glass before they start to wonder if there's something important about that glass.

My first time ever DMing and my game is running on 3 months so far. Where NPCs are concerned, I only give the players a vague description, and only if it's an NPC they're actually interacting with. They can ask for more info, but as the DM, I don't have the inclination to create fully-fleshed characters every time my players want to talk to someone. If required, I map out a few rough motivations to reflect how they interact with other people.

Honestly, I personally think the best way to make NPCs feel real is to write in actions for them. Having an NPC fold his arms over his chest when he's mistrustful, or sigh when he's annoyed, or bite his nails when he's nervous makes those characters feel alive, because they're doing what real people do when they feel those emotions. And it can be inserted in a break between dialogue to avoid large blocks of exposition.

I'm with Greyfeld here. I've been playing for close to 10 years now (and darn does that make me feel OLD!) and I'm planning my first campaign, and I can't say I enjoy the thought of describing non-important npc's in detail as a player or a soon to be DM. You can use them to set the mood yes (children playing with a puppy and people walking by doing their thing for a small-town, relaxed and safe feel for example.) and just give them a few rough descriptions to give them an idae of what's around and what they can interact with. But fully describing an npc and what it's doing? It needs to either be important then (cause the players WILL interact with it since it's described) or it will need to be out of the ordinary. (Why is that little girl playing with her dog in an alley filled of filth and a couple of corpses...?) But to me npc's are party of the scenery and will be treated as such.

There are several important uses of commoner-type NPCs that should not be overlooked.

They set the scene: the actions of the populace at a particular time of day, the style of their clothes, the way they interact - the way they react to events. All these things give the players-characters ways to understand the society/people/culture without having to research it or have it spelt out by the GM in a narrative that simply hands out the information. This can be important if the GM wants to set a tone of strangeness, or of simple foreignness, or of investigation.

The reactions of commoners can give clues as to how the laws of a place are observed and enforced, similarly with religious faith. They can demonstrate the wealth, status, ethnicity, professions of the place.
All of these can provide clues in a scenario, or simple contrasts with previously visited (more familiar) locations.

One of my favourite things to do it to use commoners to let a party know how blatant or unusual their actions are. Much like a Tenchu style computer game I have an alert level at which commoners will sound a hue & cry or call for a militia/enforcer officer to investigate suspicious actions.
A PC who thinks his actions are not abnormal, or that they are going unnoticed can get a chance to re-evaluate when he sees commoners peering and pointing at him suspiciously.

Another use of commoners is individuals, where you could spend a little more time with unique description. The local barmen/trader/militia could be a useful source of information and rumour, maybe even a sounding block to try out the PCs ideas/theories/plans/experiments.

The flip-side, or maybe just the thing you have to be careful of, is the Chekhov's Gun problem. (read it on TV Tropes website if you need a time sink)
"One must not put a loaded rifle on the stage if no one is thinking of firing it."
If you use NPCs infrequently and then suddenly highlight one with an extra level of attention, then it becomes an obvious target for PC attention, or else a red herring.

When you're reading a book and the hero walks into a new town, does the author detail every unique quirk of every NPC the hero meets? No. At most, the author gives you descriptions of a handful of people, and then only tells you when someone is "not like the others" so you know who doesn't belong, even if the hero doesn't immediately pick up on it.

Then again,

*cough* Robert Jordan *cough*

some authors detail every NPC, and then follow through with Chekhov's gun by using every one of them again at some point. Which is totally fine if you expect your campaign to last 20 years.